Abu Dhabi's gas industry investing in new and expanded production

Despite being home to the world’s seventh-largest natural gas reserves, with 215trn standard cu feet (scf), according to the “BP Statistical Review of World Energy 2015”, the UAE has been a net importer of gas since 2008. Indeed, according to the US Energy Information Administration (EIA), over the past decade the UAE’s imports of natural gas have risen significantly from just 7bn scf in 2003 to 685bn scf in 2013.

Far from running out of gas, the current situation reflects the complicated economics of the commodity within the UAE, and in particular Abu Dhabi, where the majority of the gas is located.

Not only is gas used for domestic power generation and industry – where demand for energy has doubled over the past 10 years – but it is also vital in maintaining oil production. The UAE reinjects almost 30% of gross national gas production to maintain wellhead pressure, and condensate reservoirs are net consumers of gas. As well as power, industrial and oil production uses, Abu Dhabi also continues to export gas in the form of liquefied natural gas (LNG), through long-term contracts with Japan’s Tokyo Electric Power Company that will expire in 2019. According to Statistics Centre - Abu Dhabi’s “Statistical Yearbook of Abu Dhabi 2015”, in 2014 Abu Dhabi earned $4.6bn from such exports.

Expanding Capacity

Meeting these various demands – and making the most effective use of this much in-demand resource – has necessitated a great deal of renewed investment in Abu Dhabi’s gas sector in recent years. A series of programmes have been put in place to develop new resources – including some of the most technically challenging reserves in the world – while processing and distribution facilities have also witnessed major investment. Perhaps the most ambitious recent development to boost production has been the sour gas project at the Shah field, being carried out by Abu Dhabi Gas Development Company, also known as Al Hosn Gas. The project is a 60:40 joint venture between the Abu Dhabi National Oil Company and Houston-based Occidental Petroleum Corporation, which joined the project in 2011. The Shah field, which was first discovered in 1960, is located 210 km south-west of Abu Dhabi City, is perhaps the most challenging gas field to have been developed in the UAE. Challenges include a hydrogen sulphide content of 23%, CO content of 9%, pressure of up to 5500 pounds per sq inch and bottom hole temperatures of up to 150°C.

Overcoming Obstacles

To develop the field Al Hosn Gas originally planned to invest some $17bn in four main elements: a gathering system, processing plant, production pipelines and sulphur granulation facility. Due to advances in technology, however, the project came in with a significantly lower budget, at $10bn, according to Saif Alghefli, CEO of Al Hosn Gas. Production at the facility hit full capacity in October 2015, with 1bn scf per day of highly sour gas being converted into 500m scf of sales gas, alongside 30,000-35,000 bpd of oil condensates, 25,000-30,000 bpd of natural gas liquids (NGLs), 1400 tonnes per day of ethane and an average of 9200 tonnes per day of sulphur.

However, it is only recently that advances in technology have rendered the highly sulphurous field both safe and economically feasible for development. The scale of the Shah gas development is also larger than similar projects undertaken elsewhere in the world. The project entailed the construction and successful operation of the world’s first single gas plant to process at least 1bn scf per day of gas, with a hydrogen sulphide concentration of 23% or more. Alghefli told OBG, “Technology and innovation has been at the forefront of everything we have done. All of our suppliers have had to develop completely new technologies, materials and production methods in order to deal with the corrosiveness of the sour gas, not to mention the scale of the operation.”

In addition, on the midstream side, Al Hosn Gas has had to not only pay unique attention to special designs for the new processing plant, gas sweetening and sulphur recovery processes, and segregation of sour and sweet gas, among other things, but also ensure that the lifecycle of infrastructure and facilities is at least 30 years, similar to a conventionally built gas plant. Alghefli told OBG, “With the success of Al Hosn Gas, a slew of projects are lined up within the UAE and there appears to be a healthy competition to see who can first deliver the next major gas project. I see a healthy environment that is not only bringing huge investments to the gas sector, but also the latest technology, while generating employment opportunities”.

Occidental has played a key role in the Al Hosn Gas project. Of the 500m scf per day of natural gas that Al Hosn is producing, Occidental’s net share is more than 200m scf per day, as well as 20,000 barrels out of Al Hosn’s 50,000-bpd target for NGLs and condensates, as well as 560 tonnes per day of ethane.

Looking Ahead

The Shah development is likely to be a sign of things to come in the gas sector. As Alghefli noted, “Most gas fields in the Middle East are sour or tight in nature and require massive investments. Fortunately, technology has advanced to a point where the huge reserves from these fields can be unlocked safely. The sheer volumes, the current liquids pricing and the cost of alternate energy have all contributed to making these sour gas projects feasible and economical.”

After Shah, ADNOC has also been examining the potential for other sour gas developments. In 2013 Shell had been chosen as a development partner for the deeper sour gas reservoirs at the already producing Bab field, in a 30-year joint venture following a similar 60:40 structure to Al Hosn. However, whereas Al Hosn is a wet field, producing fairly substantial and valuable condensates, Bab’s sour reservoirs are dry and even more sulphurous. This may mean the Bab field is less competitive and a greater technical challenge that would require flush phasing to keep the pipelines clean. Potential production at the Bab field has been estimated at around 519m scf per day. With these challenges in mind, and in light of the need to save costs given the low oil price, in January 2016 Shell decided to withdraw from the Bab project. It was not clear whether a new investor was being considered as of early 2016, but a statement from the Ministry of Energy suggested the government would be considering other options, such as importing LNG or expanding input from the Dolphin gas project. On the sidelines of the World Future Energy Summit in Abu Dhabi, Suhail Al Mazrouei, the UAE ministry of energy, told The National, “The price of gas has dropped by more than 50%. Developing a more expensive solution is not going to be viable at this time. But that is good news also for us because we do not want to develop gas that is more expensive than the gas that we can import.”

New Fields

As well as Shah and Bab, ADNOC is also looking to the Shuwaihat field in western Abu Dhabi as another potential sour gas development. In 2012 ADNOC selected Germany’s Wintershall and Austrian industrial firm OMV – in which the International Petroleum Investment Company has a 24.9% stake – to appraise the field for potential future development. Wintershall is the operator and brings particular expertise with sour gas to the emirate, having some 40 years of experience in sour gas production in Germany, where the company is based. Uwe Salge, general manager of Wintershall Middle East, told OBG that the company was pleased with the results of the appraisal stage. “We are quite confident that this project will ultimately lead to something larger,” he told OBG. “Abu Dhabi is keen to reap the benefits of sour gas and ADNOC is continuing to push strongly for results in this area.”

Georg Wachtel, former manager of OMV Middle East, told OBG that during the pre-concession phase Wintershall and OMV had already drilled one well and intend to drill a second by the first quarter of 2016. “Once the data from both wells is analysed we will assess whether to drill a third, or move on to the development stage,” he told OBG. Development would entail entering into a concession agreement with ADNOC, which is the company’s ultimate goal.

Moving Beyond

With demand for gas growing, Wachtel sees the current exploration as part of a larger strategy by the government to develop the hydrocarbons industry in the Western Region. “There is a lot of local pressure to look at the potential for more sour gas developments, given the need for the resource,” he told OBG. “But there is also a stronger appetite regionally, in places such as Oman and Saudi Arabia, for instance, to develop fields with a higher concentration of sulphur gas. The easy-extraction fields are all but developed.”

In line with these new investments to increase production capacity, Abu Dhabi’s gas processing companies Abu Dhabi Gas Industries (GASCO) and the Abu Dhabi Gas Liquefaction Company (ADGAS) have also put in motion plans to expand the emirate’s processing facilities. In 2013 GASCO completed its $11bn Integrated Gas Development (IGD) project, which combined the onshore and offshore complexes of Habshan and Das Island in readiness for new offshore gas due from the Umm Shaif and Khuff fields run by the Abu Dhabi Marine Operating Company (ADMA-OPCO). In February 2015 GASCO and ADGAS announced that they had awarded $1.6bn of new engineering, procurement and construction contracts for the first phase of the IGD expansion project. The contracts, which comprised three packages, were awarded to a combination of local and international contractors. The first package, which mainly consists of a new gas dehydration train for ADGAS’s Das Island facilities, was awarded to a consortium of Maire Tecnimont of Italy and Archirodon of Greece. The second package, an offshore pipeline for GASCO linking Das to Habshan, was awarded to local contractor the National Petroleum Construction Company. The final package, also for GASCO, mainly comprises modifications to Habshan, and was awarded to Spanish firm Tecnicas Reunidas.

All three packages are scheduled for completion within 40 months. As the challenges associated with gas extraction and processing become more complex, and asset integrity becomes a main focus of the sector, an increasingly important role is emerging for sophisticated, technological solutions. The coming years are thus likely to present further opportunities in the sector for technical collaboration and knowledge transfer, placing the emirate at the forefront of a new era in gas production.

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The Report: Abu Dhabi 2016

Energy chapter from The Report: Abu Dhabi 2016

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